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Fuel prices surge as oil markets react to Middle East tensions
UK drivers are paying more at the pump as the conflict between Israel and Iran drives up global oil prices. According to the RAC, average petrol prices rose to 150.11p per litre by Friday-up 17.3p since the start of the conflict-while diesel climbed 35.3p to 177.68p.
Retailers and the government have clashed over the increases, with accusations of profiteering amid volatile crude prices. Analysts note that every $10 rise in oil costs adds roughly 7p per litre to fuel prices. While supplies remain stable, motoring groups urge drivers to cut non-essential trips and adopt fuel-efficient driving habits.
Mortgage rates climb as lenders brace for economic fallout
Hopes for lower borrowing costs have evaporated as lenders raise mortgage rates in response to the conflict. The average two-year fixed rate jumped from 4.83% at the start of March to 5.75%-its highest since March 2025-while five-year deals rose from 4.95% to 5.69%.
Market uncertainty has also reduced mortgage options, with 1,620 fewer products available than before the conflict. Adam French of Moneyfacts warned that lenders pulling deals signals rapid shifts in funding costs, leaving borrowers with fewer choices.
Energy bills set to rise despite temporary price cap relief
UK households are shielded by Ofgem's price cap until July, but forecasts suggest bills could spike afterward. Cornwall Insight predicts dual-fuel costs will rise from £1,641 to £1,934 annually for typical usage between July and September. The cap, however, doesn't cover heating oil users-primarily in rural areas and Northern Ireland-who face uncapped price hikes.
Prime Minister Keir Starmer announced £53m in support for vulnerable heating oil users, distributed via devolved authorities. The Competition and Markets Authority also warned suppliers against unfair pricing, emphasizing that customers should pay agreed rates.
Inflation fears grow as Bank of England adopts wait-and-see stance
The Office for Budget Responsibility initially projected UK inflation would hit 2.3% this year and stabilize at the Bank of England's 2% target by 2027. However, the conflict has upended those forecasts, with analysts now expecting a sustained rise. While inflation is unlikely to reach the 11.1% peak of October 2022-when the Ukraine war disrupted food supplies-uncertainty remains high.
The Bank of England held interest rates at 3.75% in March, signaling a cautious approach. Governor Andrew Bailey previously hinted at rate cuts, but many now expect the next move to be upward, increasing borrowing costs while potentially boosting savings rates.
Travel costs and everyday expenses feel the squeeze
Higher fuel prices are rippling through the economy, pushing up transport costs and food prices. Supermarkets may raise prices to offset delivery expenses, while airlines face soaring jet fuel costs. Though carriers use hedging strategies to limit short-term impacts, prolonged high prices could lead to pricier flights or reduced routes.
For savers, economic uncertainty may encourage hoarding, but rising living costs could erode the value of stagnant funds. Meanwhile, holidaymakers could see fewer destination options and higher fares this summer.
Outlook hinges on conflict duration and global recovery
The depth and longevity of the financial impact depend on how long the conflict persists and how quickly supply chains stabilize. While the UK's immediate economic outlook remains fluid, households are already adjusting to tighter budgets and higher costs across fuel, mortgages, and energy.
